Finance minister Nirmala Sitharaman on Friday announced that the deposit insurance cover would be enhanced five times to Rs 5 lakh per bank account from Rs 1 lakh insured currently. The decision was taken to allay depositors’ fears about losing bank deposits in the wake of a scandal at Punjab and Maharashtra Co-operative Bank in September 2019.

“A robust mechanism is in place to monitor the health of all scheduled commercial banks. I would like to assure everyone in this august gathering…depositors’ money is absolutely safe,” Sitharaman said in her Budget 2020 speech.

The Deposit Insurance and Credit Guarantee Corp will now provide insurance for up to Rs 5 lakhs deposits per bank account, the FM announced.

The DICGC has been set up by the government under the Reserve Bank of India to protect the depositors’ money if a bank were to fail. It covers all commercial and co-operative banks, except in Meghalaya, Chandigarh, Lakshadweep and Dadra and Nagar Haveli. Primary co-operative societies, however, are not covered under DICGC.

Up until now, deposits of only up to Rs 1 lakh per bank account were insured by the government. However, the fall out of the PMC Bank crisis last year, which led to a huge public outcry about the safety of deposits, has prompted the government to increase the insurance cover for such deposits to restore the public’s faith in the banking system.

Deposit insurance is a protection cover against losses accruing to bank deposits if a bank fails financially and has no money to pay its depositors and has to go in for liquidation.

First Published:Feb 1, 2020 12:55 PM IST